Canadian Tire profit jumps on credit cards, acquisition

Allison Martell

4 Min Read

TORONTO (Reuters) - Canadian Tire Corp (CTCa.TO) reported a quarterly profit on Thursday that was well above expectations, helped by its acquisition of a sporting goods chain, growth in its financial services division and a lower tax rate.

Canadian Tire Corp. President and CEO Stephen Wetmore is silhouetted against the video screen at their annual general meeting for shareholders in Toronto, May 10, 2012. REUTERS/Mark Blinch

Much of the earnings growth at the company, one of Canada’s biggest and best-known retailers, came from its credit card business, but it also posted strong sales at established stores, a key measure of performance in the industry, and its shares rose.

At the flagship Canadian Tire banner, which sells housewares, sporting goods and automotive products, same-store sales rose 3.3 percent. The company said good weather in March boosted sales of products such as bicycles and gardening equipment.

“The results were just very strong, much better than we expected,” said Edward Jones analyst Brian Yarbrough. “These guys continue to execute. I mean, you’ve got to give (Chief Executive) Stephen Wetmore credit.”

At the company’s clothing retailer Mark’s, same-store sales rose 5.8 percent, and they were up 7.0 percent at its sporting goods chain, FGL Sports.

The company said FGL, formerly Forzani Group Ltd, which it bought last year, was “well positioned for the early onset of spring.”

“Forzani was the most weather-sensitive consumer stock back when it was a public company, and now that it’s part of Canadian Tire, we’re seeing increased exposure to weather” at Canadian Tire, said Canaccord Genuity analyst Derek Dley.

FINANCIAL SERVICES LEADS

Canadian Tire’s retail revenue rose 26.5 percent from the same quarter last year. Excluding FGL, it was up 6.7 percent.

Revenue gains, however, were held back by discounting of winter seasonal goods, higher sales of lower margin products and higher operating expenses. Overall, the retail segment’s income before income taxes fell 23 percent to C$24.5 million ($24.4 million).

But financial services’ income before taxes rose 44 percent to C$73.0 million due to higher credit-card interest income and fees and a reduction in impairment losses on loans.

Dley said the financial services results were better than he had expected. He said the segment was doing well due to both a change in strategy and an improved business environment.

“They did shift from 2008, when they were going after a riskier consumer,” he said. “They have reduced that, but as we’ve seen the credit environment improve since 2008, we’ve (also) seen those write-offs come down.”

Canadian Tire’s first-quarter profit rose to C$71.0 million, or 87 Canadian cents a share, from C$58.4 million, or 71 Canadian cents, a year earlier. Analysts, on average, had expected earnings of 79 Canadian cents a share, according to Thomson Reuters I/B/E/S.

Revenue also topped expectations, rising 23 percent to C$2.44 billion, compared with the average forecast of C$2.37 billion.

Canadian Tire’s heavily traded class A shares were up 4.2 percent at C$70.22 on Thursday on the Toronto Stock Exchange.